Production and Operations

Management A *

Emerson M. Babb

The historical development of research on production and operations management was

traced from its roots in firm cost and efficiency studies through systems analysis
research. This research made an important contribution to improved performance of
firms. Reasons for the sharp decline of research in this area were examined. One
reason relates to the fact that research problems had less direct relevance to the firm.
Information needs of firms and others were examined. This provided the basis for
identdjing needed mearch. While a number of research problem areas were described,
two were discussed in depth: comparativeperformance informationand expert systems.

INTRODUCTION
Those people preparing articles were asked to identify real-world problems and
concerns in agribusiness management that can be addressed by research and to
suggest approaches for analyzing those issues. That is the focus of this article.
The decline in agribusiness research during the past 15 years has been precipitous.
One reason for that decline may be the poor job we have done in identifying
researchable problems that were important to those in the private or public sector.
There has certainly been no dearth of problems facing agribusiness firms.
It is difficult to define the scope of research in production and operations
management. For purposes of this article, it will be defined by research that has
the objective of increasing economic efficiency of firms. The public has become
more aware of problems resulting from low growth in productivity of US firms as
they face new competitors in markets which are now international in character.
Public support for research designed to improve efficiency and productivity should
be strong. This support may be dampened by the perceptions that gains in
economic efficiency will be captured by firms and that agribusiness firms are now
large enough to conduct their own research. Even though firms are now larger,
the entry of new competitors may force agribusiness firms to pass more gains from

*Leo Polopolus and James Zellner provided constructive suggestions on an earlier draft of this
paper. Joe Coffey, Mahlon Lang, and Hugh Moore made some suggestions about agribusiness
research needs. This article was presented at a workshop on Research Issues in Agribusiness
Management in Reno, Nevada on July 31, 1986.

Emerson M. Babb is Ben Hill Gr@n Jr. Professor ofAgricLlltura1

Marketing in the Food and Resource Economics Department,
University of Florida, Gainesville, Florida.

Agribusiness, Vol. 2, No, 4, 421-429 (1986)

6 1986 by John Wiley & Sons, Inc. CCC 0742-4477/86/040421-09$04~00
422 BABB

efficiency to consumers. Firms are doing more research internally or having it

done by private consultingfirms, but most of that work is for product development.
The potential benefits of research which improves efficiency of agribusiness
firms are immense. French’ estimated that we were spending less than 0.02% of
the total agricultural marketing bill for marketing efficiency research. In 1984
total state and federal expenditure for all marketing economics research was only
0.01% of consumer expenditures for food.3 One study which measured the return
on public investments in marketing research found a high rate of return, com-
parable to rates previously estimated for production research, but the study was
limited to postharvest research for citrus pro~essing.~ Additional information on
this subject is much needed. Given the small research expenditures, rather minor
improvements in marketing efficiency would result in positive returns to research
investments. The marketing bill including purchased farm inputs is now about
$275 billion, approaching 90% of consumer food expenditures.
The type of production and operations management research has changed
greatly over time.’ These changes are briefly reviewed. The need for information
that can be provided by research in this area is then explored. Finally, two
researchable problems are described in some depth. While this article and others
focus on agribusiness research, the interactions between collegiate and extension
teaching and research strongly influence the contributions made to the public
and the agribusiness community. Some of these interactions are discussed.

HISTORICAL PERSPECTIVE
The Agricultural Marketing Act of 1946 was responsible for the major expansion
of marketing research. The Act earmarked funds for marketing research and
placed emphasis on improving productive efficiency of agribusiness firms. Research
initially focused on marketing margins but shifted into a variety of cost studies
during the 1950s. The scope of studies varied from analyzing labor efficiency for
some operation in a plant, e.g., packing apples,6 to economies of size for a range
of plants.’ Methods of analysis progressed from analysis of accounting data to
economic-engineering techniques.
During the 1950-1970 period, there were many small, independent agribu-
siness firms. They did not have the capacity to do research and there were few
private research organizations to which they could turn. Agribusiness firms had
a strong interest in cost and efficiency studies and most were willing to provide
data for research or to have their plants used as laboratories for the research.
Firms could transform research findings into cost savings so there were few
questions about the value of research activities. There were good outlets to dis-
seminate research findings including numerous trade magazines, trade association
meetings, and university publications. In addition, extension specialists used the
research findings in their work with firms. Much of this early work found its way
into the classroom via textbooks and class materials. In short, the firm cost and
efficiency studies provided assistance to a wide variety of firms and addressed a
problem that firm managers thought was important. The value of the research was
enhanced by extension and classroom teaching uses.
During the late 19.509, firm efficiency work was broadened to examine the
optimum size and location of This was a natural extension of the earlier
plant efficiency work and addressed questions which were becoming important
 PRODUCTION AND OPERATIONS 423

to firms. Technology was rapidly changing economies of size for plants and the
feasible sales areas they served. Regional shifts in the location of raw product
were occurring. Many consolidations and mergers were taking place. Public
agencies and policy makers, as well as firms, were interested in the results of
this research. It provided an understanding of performance within an industry
and the tradeoffs between benefits from economies of size and potential pricing
inefficiencies associated with greater concentration.
The next extension of efficiency research examined firms within the context of
a larger system which transformed raw products to consumer goods. This approach
was suggested by Shaffer" who argued that the focus of firm efficiency research
was too narrow. The systems approach could identify economic benefits associated
with alternative configurations of the system. Barriers to the adoption of the optimal
configuration might be reduced as gains and losses to various firms and partic-
ipants in the system were revealed. This might form the basis for compensation
to losers and facilitate adoption. The pioneering work of Snyder and Candler" is
one of the few examples of this type of research. In fact, that work was done
under a cooperative agreement with the Department of Agriculture with the explicit
purpose of examining the research potential of systems analysis.
Firms had some interest in results of systems analysis because of its implications
for their future performance. They could not unilaterally redesign the production-
marketing system. Of course, system analysis was used to improve the performance
of firms where the system being modeled was the domain of the firm or new
segments. it might enter. Most of the systems analysis conducted at universities
was not firm specific and had public agencies and policy makers as the prime
audience. This group was provided some insights into actual and potential per-
formance, but were also ineffectual in changing the systems. Changes which did
take place occurred gradually and in response to economic incentives. There was
no strong extension-research linkage associated with the systems analysis work
and little of this research made its way into undergraduate business management
courses. One impediment to research on production-marketing systems was the
resource requirements. Not only is the research expensive, but it requires con-
siderable time, often two to five years. The assistance of several people with
specialized knowledge about the system is frequently required. Systems analysis
thus represents a major commitment of time and money.
The highwater mark of research on production and operations management was
in the late 1960s. This was a time when there was a mix of various types of plant
efficiency studies and research on the optimal size and location of plants. Since
the early 1970s, production and operations management research has declined
to the point that it should be considered an endangered species.
Some of the reasons for this decline are briefly explored. This is not to lament
the decline in firm efficiency research, but to help answer the question of whether
there is need to have some minimum level of research in this area. First, it seems
natural that professional interest in efficiency research would wane after 20 years
of prominence. A discipline thrives on new research problems, new research
methods, and new approaches. It was also clear that policy makers and others
were overly optimistic in their early view that improved efficiency would solve
the farm problem. Second, firms did become much larger and developed research
capacities. There was skepticism about the return on investment of public funds
in research to improve efficiency of private firms. Third, the research problems
424 BABB

being addressed had less direct relevance to the firm. There was less incentive
for cooperation and a reduced role for extension to play. This last reason, of
course, reflects one major purpose of this workshop, problem identification.

INFORMATION NEEDS
As persons with some expertise in marketing and business management, we should
understand the need to know the demand for our research products. What infor-
mation can we provide that will be of use to various clientele? There is little
feedback about uses being made of research findings. Discussions with persons
in industry positions suggest that they are using much public research. One useful
product of more contacts between agribusiness and university persons would be
feedback on what uses are being made of research. The examination of information
uses and needs is one way to approach problem identification.
There is a continuing need for information regarding costs, ways to improve
efficiency, and economies of size. This type of information is still not available
to many firms. It is also needed by those doing research on industrial organization
and by regulators and policy makers concerned with antitrust and competitive
issues. Without current information about such things as economies of size, our
policies regarding competitive environment may be misguided. New technology,
new substitute products, new competitors, and changes in entry and exit barriers
are constantly altering the need for regulation and policies to generate an appro-
priate competitive environment. In addition, this type of information is the core
of much system analysis. The absence of current information means that obsolete
systems are being modeled.
Another type of needed information involves performance measures, including
financial and efficiency measures, which firms can use to assess their strengths
and weaknesses and to improve their performance. This information is used mostly
for comparative purposes. Performance can be compared over time, with similar
firms, and against norms or standards. Many larger firms now generate this type
of information for managers of plants, branches, departments, or profit centers
within the firm. Public collection and dissemination of this information would
permit firms now generating the information internallv to make comparisons on
a broader basis. Of course, there are many smaller firms who have no access to
performance data unless it is provided on a public basis. Performance information
has many uses to public policy makers including identifying industries or types
of firms which are experiencing problems. It is related to much of what is being
taught in undergraduate classes and more will be said about this later.
Farm production, processing, and retailing have become more coordinated.
Information is needed to aid decision making in this coordinated system. The
role of new information technology and decision aids needs to be assessed.
Information about the impacts of other new technology is also needed. There have
been large changes in the structure of agriculture, food processors, and food
retailers. Projections of these changes and trends in consumption are needed for
planning purposes. In short, a great deal of information about the future envi-
ronment is needed by agribusiness firms.
Extension’s role in disseminating earlier research results was discussed. If
future research addresses problems of importance to firms, extension persons may
continue to assist in the dissemination process. It would also provide fertile ground
 PRODUCTION AND OPERATIONS 425

for management training programs which would in turn increase the value of
research output.
We need to give more attention to the relationship between research and our
undergraduate and graduate teaching responsibilities. Probably 80% of under-
graduates in agricultural economics now think they are being trained for agri-
business positions. Many of our teachers have little exposure to the agribusiness
community and do little research relating to agribusiness management. A review
of recent texts used in business schools reveals that professors there are very
active in research on business topics and are publishing widely in a variety of
business and management journals. The agricultural economics profession has
long recognized the synergism between teaching and research with the expectation
that its research be used in the classroom. The decline in agribusiness research
does not bode well for the quality of our collegiate teaching. If we lose students
interested in agribusiness employment, we are likely to face some very small
classes. Given this major responsibility for undergraduate training, we should
view students as one of the clientele for agribusiness research. This has some
influence on the problem areas which are next identified for research.

IMPORTANT RESEARCH AREAS

It is easy to nominate a large number of research problem areas that would be
worthy of serious attention. Rather than do this, two problem areas will be
described in some depth. First, some research needs that have been proposed
by others are summarized.
Several publications have pointed to needed research in evaluating technol-
ogy,12 intrafrm decision making,l3 relations between production agriculture and
the food system,14 and marketing research that is relevant to agribusine~ses.~J~
The need for studies which update our knowledge of economies of size has
been mentioned frequently. We now have some promising new approaches for
estimating costs of multiproduct firms. l6 The theoretical basis for research on
economies of scope and estimation procedures are fairly well developed. As more
empirical research is reported, we may have a better understanding of diversi-
fication impacts, interrelations of product costs, and the relative influence of
scale and scope economies in different industries. This information will be useful
to firms and it may have implications for our antitrust policies.
New technology is rapidly emerging in information systems, genetics, produc-
tion systems, and other areas. The assessment of new technology is an important
responsibility which could be undertaken by extension and research workers.
Extension could play a major role in assisting with the adoption of new technology.
Technology will probably have a greater influence than any other force on pro-
ductivity of agribusiness firms and the organization of subsectors in which they
operate. Except for information, our profession will be limited to evaluating and
determining the impacts of technology. We do need to consider how we can
contribute to the development of technology relating to information that has poten-
tial use to agribusiness firms. Some firms now think the sophistication of their
information technology exceeds the capacity of employees to use it productively.
Projecting the economic environment is certainly on the fringe of production
management research, but it is important to the performance of agribusiness
firms. Many production decisions such as product mix and facilities have long
426 BABB

term consequences. Those consequences may be negative if assumption and

projections about trends, markets and economic environment are incorrect. Proc-
essors need to anticipate changes in farm structure, shifts in the location of
’’
production and changing consumption patterns. Research which provides this
type of information can reduce the number of bad decisions and improve effi-
ciency.

Comparative Performance
The importance of research that measures the performance of firms was earlier
discussed. If efficiency and other aspects of performance are to be improved,
managers must have some standards for comparison. Performance measures should
identify not only strengths and weaknesses, but also reasons for good or poor
performance. In other words, corrective actions should be indicated by the infor-
mation provided. This type of information seems to be a prerequisite for improving
firm efficiency and performance.
Examination of a report on a research program receQtly concluded at Purdue
University” may provide suggestions about research on firm performance. It is
an example of industry studies which have direct application to firms. Data on
firm performance may be analyzed to determine differences based on size of firm,
organizationalcharacteristics, geographic location, product mix, and other factors.
Of course, the firm can use such information directly to assess their changes in
performance over time and to compare their performance with that of others. The
availability of performance information that can be used by firms has declined,
but some information is still available on a limited basis for food retailing,19vm
fluid milk processors,21and plant food and chemical retailers.22Studies have also
been published which contain useful performance information for one point in
time.’* This is much less useful than information published on a continuing and
consistent basis. Several firms provide performance information to clients on a
fee basis.
Aside from the importance of this type of research to firms, it is much needed
for undergraduate classroom use. It is relatively simple and easy to do and has
very low risks. It does not require extensive time and could provide research
experience for both undergraduate and M.S. students. Firms often collect large
amounts of data, which are subjected to only superficial analysis. These data
could be recycled for analysis as student projects with large benefits to the donor
firms and the students. This type of research provides a link between the under-
graduate teacher and those in agribusiness.
Research on firm performance would provide extension specialists with material
which could be used to train agribusiness personnel. These firms have a strong
incentive to learn how to use the performance information to strengthen their
firms. The high level of interaction of research, teaching, and extension com-
ponents in this research problem area is a major reason for expected high returns
on public investment.
Firms have indicated an interest in research which identifies factors associated
with a successful business, especially retail or local outlets, and a successful
manager. What can be done to reduce turnover and motivate managers and
employees? What guidelines can research provide regarding personnel selection
and training? These are all problems that are related to comparative performance.
 PRODUCTION AND OPERATIONS 427

Part or all of the costs of comparative performance research and related training
of persons in firms may be paid by participating firms or users of the information.
They pay for most of the performance information now generated. Firms may also
view this type of activity as a desirable way to build bridges to those at universities.
They may benefit by better contacts with students they wish to employ and by
knowing professionals who can help solve problems or guide them to needed
information.
The provisions of comparative performance information should probably start
on a small scale, involving only one or two states. It would be logical to expand
the scope to other states after a learning period. This could result in some
beneficial cooperation among persons in different states.

Expert Systems
The field of artificial intelligence has been around for quite a few years. In fact
Herbert Simon, a winner of the Nobel prize in economics, made significant
contributions to the field during the 1950s. Artificial intelligence has evolved
from an arcane field of science into one of the growth areas of information
technology. It is more popularly known as expert systems (ES) because the usual
format is one of providing diagnosis and advice. The computer software emulates
an expert in dealing with a problem. In fact, the computer software is often based
on the combined knowledge of many experts. The purpose of an ES is to provide
information and advice that will solve a problem and improve decisions.
In agriculture, many of the applications deal with the diagnosis and treatment
of insects and diseases affecting plants and animals. It has also been used to
provide information about the consequences of alternative ways to market grain.
The increased coordination of farm production, marketing, and finance presents
a need for development of ES that would assist with problem solving and decision
making concerning all aspects of the firm and the environment in which it operates.
One cannot get advice from a human expert about what crops to plant without
considering market alternatives and financial arrangements. There is no reason
to expect a different outcome because a computer is involved. There is so much
overlap in data needed to provide information on any of these topics that it would
be very inefficient to design software for various production problems, various
marketing problems and the like.
There are some problems, for example pest management, which are independent
of other production/marketing problems. While stand-alone software may be
appropriate in this instance, it may be more efficient from the standpoint of the
user if it were made part of a broader software package. There are various “shells”
and languages which are designed for ES development. It is unreasonable to think
that managers will become familiar with an assortment of ESs that are quite
different in their operation. Thus the need for a comprehensive package of software
which integrates production, marketing, and finance problems for firms involved
in such things as beef, poultry, dairy, feed grains, wheat, citrus, and the like.
The design of a comprehensive ES is related to the systems analysis research
described earlier. It would require experts from many fields and involve large
development costs. Problems inherent in team research would persist. There is
considerable risk compared to performance research. While system analysis research
had a small audience, ES work has a large potential group of users.
aa BABB

At this stage, universities have a large comparative advantage in the devel-

opment of ES for agriculture. Commercial feasibility is probably several years
away. It seems reasonable to use public funds to explore the potential of this new
technology. This could greatly decrease the time required for adoption and use
of ES. If exploratory work reveals substantial potential, ES will become com-
mercialized. It is thus possible that private firms may be willing to provide some
of the funds for exploratory work and they may be able to assist in some of the
development aspects.
There is strong reason to coordinate ES development. It would be absurd for
each state to develop a host of systems. One good aspect of tight funding for
research is that this is not likely to happen. The development of several ES should
proceed on an exploratory basis for diverse commodities selected to give insights
into commercial potential. The development work for each ES should be cen-
tralized at one or two universities to provide close and continuous proximity of
those working on the project. For example, Florida might develop an ES for citrus,
Illinois an ES for grain, Texas an ES for beef.
There is also renewed interest in Computer Assisted Instruction (CAI) which
is at least a cousin of ES. It provides training as opposed to information and
advice. The widespread availability of microcomputers makes the use of CAI
feasible at the home and workplace as well as teaching laboratories and special
teaching facilities at universities. Commercial development of CAI will come
much quicker than for ES, but there is no difference in principle in writing a
textbook and CAI. There are obvious linkages between collegiate and extension
teaching and research in this area. The optimistic expectations about ES and CAI
which are appearing in the computer trade press may be overstated, but the
potential is great enough to justify exploratory research.

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 PRODUCTION AND OPERATIONS 429

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